Stocks in Broad Rally; Yields at 18-Month Low

The great stock bull market rolled on to new highs on Wednesday, as long-term bond yields slid to the lowest levels since February 1996.

The Dow Jones industrials leaped 80.36 points, or 1%, to a record 8,254.89, leading a broad advance on Wall Street.

Investor optimism ran high as bond yields continued to tumble in the wake of the federal balanced-budget deal.

With the government cutting the supply of new bonds because of lowered borrowing needs, “No one is afraid of this market,” said Neil DeSarno, bond trader at CIBC Wood Gundy Securities.

The 30-year Treasury bond yield sank to 6.32%, the lowest level since Feb. 16, 1996, and down from 6.38% on Tuesday, as investors rushed to lock in yields.

The Treasury helped stoke the rally by announcing that it will auction $38 billion of three-year, 10-year and 30-year bonds next week in its quarterly “refunding.” That total is below the $39.75 billion in such securities auctioned in February, the last time all three were auctioned at once.

What’s more, bond investors are exhibiting little fear that Friday’s government report on July employment might suggest that the economy is gaining steam.

“You can’t fight this,” said Patricia Larkin, who oversees $35 billion in fixed-income securities at Dreyfus Corp. “The market doesn’t feel like it’s going to crack.”

And as long as yields are sinking, analysts say stock investors may continue to snap up shares, despite historically high values.

“It’s pretty hard to argue that stocks are going to go down if bonds keep rallying,” said John T. Wilson, who manages $5 billion for State Street Research.

Indeed, major mutual fund firms reported Wednesday that July stock fund purchases have surged from June’s levels. (Story, D3.)

The Dow index notched its sixth record in seven days, and with a day to go in July, is up 7.6% for the month--its best monthly rise since November. “You can’t stop this freight train,” said Lance Zipper, head of over-the-counter trading at Brean Murray & Co.

On Wednesday, winners topped losers by 21 to 8 on the New York Stock Exchange and by 23 to 19 on Nasdaq. The Nasdaq composite jumped 15.73 points, or 1%, to a record 1,588.05, finally surpassing the previous peak of 1,580.63 set July 16.

Among Wednesday’s highlights:

* Technology shares paced the advance. Motorola jumped $4.25 to $80.88, Computer Sciences gained $3.38 to $82, Vitesse Semiconductor surged $3.44 to $46.44, IBM jumped $3.13 to $106 and America Online gained $2.25 to $66.63.

* Many consumer products stocks resumed their climb, including Revlon, up $3.88 to $54.13; Clorox, up $4.94 to $139.56; Procter & Gamble, up $2.75 to $153.13; and Herbalife, up $1.63 to $22.38.

* Energy stocks were strong as gasoline prices hit the highest price in more than six months, amid an unexpectedly large drop in inventories after a week of refinery disruptions and strong demand. Exxon gained $1.19 to $63.94, Amoco rose $1.69 to $94.44, Atlantic Richfield added 94 cents to $73.19.

* Many financial stocks continued to surge as bond yields fell. BancOne surged $3.06 to $56.38, First Chicago NBD leaped $2.50 to $72.38, Citicorp jumped $4.69 to $135.25 and Jefferies Group soared $4.38 to $65.50.

In foreign trading, Mexican shares hit new highs, with the Bolsa index rocketing 176.74 points, or 3.7%, to a record 4,974.23.

Investors cheered after Mexican interest rates fell more than expected and second-quarter earnings at many companies were in line or better than forecasts.

The yield on Mexico’s benchmark 28-day Treasury bill fell 1.02 percentage points in Tuesday’s weekly auction, to 17.7%--its lowest level since Dec. 21, 1994, when rates stood at 16%.

The Mexican stock market “is going sky-high,” said economist Edgar Amador at Stone & McCarthy Research Associates.

Other world markets hitting record highs Wednesday included the German, French, Hong Kong and Canadian markets.

In currency trading, the dollar edged higher versus the yen Wednesday, aided by concern about a weak Japanese economy and fears of renewed tension in U.S.-Japan trade relations. The dollar settled at 118.57 yen in New York, up from 118.43 Tuesday.